Fox, you don't get to ignore facts because you dislike the source.
Start with the most basic fact of all: virtually none of the $1.5 trillion of cratering subprime mortgages were backed by Fannie or Freddie. That’s right — most subprime mortgages did not meet Fannie or Freddie’s strict lending standards. All those no money down, no interest for a year, low teaser rate loans? All the loans made without checking a borrower’s income or employment history? All made in the private sector, without any support from Fannie and Freddie.
The bundled loans were not bundled by FM or FM.
And everything snowballed from there--the derivatives weren't all real estate and everything was affected. Fannie and Freddie who backed so much of all that were quickly out of money and awash in red ink and in danger of total collapse without a federal bailout. That created the ripple effect throughout the entire banking industry and sideways into other Wall Street firms deemed 'too big to fail'.
The whole thing could have been very much mitigated and perhaps even stopped in its tracks if Congress had heeded the first alarm bells when they were sounded at least two years before the collapse. But nothing was done. Dodd and Frank rushed to get in front of microphones to assure the world that Freddie and Fannie were just fine and there was nothing to worry about.
Fannie and Freddie did not create these instruments.
Wall Street created them, and there was no arm twisting.
Well you'll have to show me more evidence than a comment made in a blog by Andrew Pressman before I won't believe the facts that I know. As I said, in September 2008, that you quoted, nobody had figured out what was happening for sure.
Fannie Mae and Freddie Mac are goverment-sponsored enterprises or GSE's. They don't provide mortgages but rather buy mortgages from various institutions. Because they are willing to buy certain kinds of mortgages, the lending institutions that do provide mortgages are covered and, when Freddie and Fannie are willing to buy really bad loans, the banks are going to make them. It is too profitable not to. If Fannie and Freddie do maintain strict standards for the loans they buy, the banks don't make bad loans.
The GSEs are designed to buy the loans and then bundle them together to see into the market. So when an unacceptable number of the loans started defaulting, it was the financial institutions who bought them that took the worst of the fall out.
Further:
Fannie Mae is tax-exempt.
Fannie Mae are allowed to hold only 2.5% capital reserves (banks normally have to hold about 10%). This allows Fannie Mae much greater leverage.
Fannie Mae receives preferential low interest rates because of governmentguarantees. This allows Fannie Mae and Freddie Mac, to go head to head with other institutions, while having a significant competitive advantages.
Fannie Mae is exempt from SEC [Securities and Exchange Commission] regulation. Thus Fanie bundled the mortgages, rated them AAA which they no way in hell qualified for, and enjoyed no requirement to be specific about what they were selling in the bundle.
And that is how so many toxic loans came to be sold across the free world. When the defaults started hitting the lending institutions hard, they couldn't tell who had good stuff and who didn't. So already hurt by defaults, the banks froze all assets and stopped lending altogether. A lot of people with the best credit in the world can't get a loan.
It still all traces back to irresponsible policy actually beginning with LBJ, solidified under Carter, percolating quietly through the Reagan and Bush 41 administrations, starting to snowball under Clinton and becoming unmanageable under Bush.
And those are the facts. You don't get to change them because they are inconvenient to your beliefs.
Read some Newt Gingrich commentary on the whole sordid mess and more of it will come clear.
